Boots chief upbeat over UniChem deal

Richard Baker, the chief executive of Boots, declared he had won round those investors sceptical of its £7bn merger with Alliance UniChem, which is expected to complete on 31 July.

The two groups, which will effect the merger via a scheme of arrangement, will send shareholders a prospectus in early June, before calling an extraordinary meeting during the first week in July.

"People have increasingly understood the benefit of the merger. We're not complacent but we do believe we will be supported," Mr Baker said. Merging the companies will create a pharmacy giant with 3,000 stores, including 2,500 in the UK, and more than £13bn in sales.

Boots has promised to deliver £100m in cost savings by the end of the four-year integration process, although some analysts think the eventual benefit could be double that.

Mr Baker was speaking as Boots spelt out the cost of investing to make its prices more competitive and its stores more shoppable. The group reported a 3 per cent fall in pre-tax profits to £349m in the year to end-March. At its core chemist chain, trading profit, which does not include exceptional items or finance costs, fell 15.4 per cent to £388.4m.

Since Mr Baker took over more than two years ago, he has slashed the company's operating margin to 8.2 per cent last year from 13 per cent. Yesterday he said the group's prices, which were 10 per cent out of kilter with rivals, were "a bit better" after lowering 1,700 since April 2005. Tesco immediately pointed to a range of products, from bath foam to hayfever relief, that it sold more cheaply than Boots.

For the coming year, Boots will seek to strengthen its healthcare credentials with its shoppers, extending its loyalty card scheme to target those with health concerns. Its new health club, which was launched three weeks ago, already has 500,000 members. The company is also investing £70m in its 700 smallest stores, some of which have not had any investment for two decades.

The group's nascent international operations clocked up another year in the red, losing £2m on testing the appetite for its products in the US and opening its first store in the Middle East.

Boots sells about 10 of its own-brand lines, including No 7 make up, in 150 outlets owned by CVC, the US pharmacy giant, and Target, a discount retailer.As well as agreeing to merge with Alliance UniChem, last year saw Boots sell off its healthcare business, which makes Nurofen painkillers and Clearasil face wash, to Reckitt Benckiser for £1.9bn. It returned £1.4bn to shareholders.